Federal Signal - Earnings Call - Q2 2016
July 28, 2016
Transcript
Speaker 0
Good day, everyone, and welcome to today's Federal Signal Second Quarter Conference Call. Today's conference is being recorded. And at this time, I'd like to turn the conference over to Mr. Ian Hudson, Vice President, Corporate Controller. Please go ahead.
Speaker 1
Good morning and welcome to Federal Signal's second quarter twenty sixteen conference call. I'm Ian Hudson, the company's Corporate Controller. Brian Cooper, our Chief Financial Officer is unable to participate in today's call as he is recovering from a sports related injury. Brian has had a successful surgery and is expected to make a full recovery. While recovering, he is still performing his duties as our CFO and he is currently expected to return to the office in August.
In Brian's absence, I will be presenting on today's call alongside Jennifer Sherman, our President and Chief Executive Officer. We are also joined today by Svetlana Viniker, our Vice President, Treasurer and Corporate Development. We will refer to some presentation slides today as well as to the earnings news release, which we issued this morning. The slides can be followed online by going to our website federalsignal.com, clicking on the Investor Call icon and signing into the webcast. We have also posted the slide presentation and the news release under the Investor tab on our website.
Before we begin, I'd like to remind you that some of our comments made today may contain forward looking statements that are subject to the Safe Harbor language found in today's news release and in Federal Signal's filings with the Securities and Exchange Commission. These documents are available on our website. Our presentation also contains some measures that are not in accordance with U. S. Generally Accepted Accounting Principles.
In our news release and filings, we reconcile these non GAAP measures to GAAP measures. In addition, we will file our Form 10 Q later today. I'm going to start today by addressing our financial results. Jennifer will then provide her perspective on our performance, current market conditions and our outlook for the remainder of 2016. After our prepared comments, Jennifer, Svetlana and I will be prepared to address your questions.
Our consolidated second quarter financial results are provided in today's earnings release. The second quarter financials include one month of operating results of Joe Johnson Equipment, which we acquired on June 3. Please also note that historical and current year information presented in the release exclude the results of the Fire Rescue Group, which was discontinued in connection with the sale of the Bronto Sky Lift business that was completed in January. Consolidated net sales for the second quarter were $172,000,000 down 16% compared to the prior year period and operating income of $14,300,000 was down from $29,200,000 last year. This quarter's reported operating income included $400,000 of acquisition and integration related expenses.
Consolidated operating margin was 8.3 compared to 14.2% a year ago. Income from continuing operations was $9,400,000 for the second quarter compared to $18,200,000 last year. That translates to GAAP earnings of $0.15 per share, which compares to $0.29 per share last year. On an adjusted basis, EPS for the second quarter of this year was $0.17 which again compares to $0.29 per share last year. Orders reported in the second quarter were $187,300,000 reflecting a 7% improvement compared to the prior year period and a 38% increase compared with the 2016.
The increased orders were largely driven by orders acquired in the Joe Johnson Equipment transaction, which we completed at the June. We ended the quarter with a consolidated backlog of $150,000,000 which was up $14,000,000 or 11% from the end of the first quarter. Importantly, our financial condition continues to be extremely strong facilitating investments such as our acquisition of Joe Johnson Equipment as well as returns to shareholders in the form of dividends and share repurchases, exceeded $21,000,000 this quarter. As you can see in our group results, the lower demand from industrial markets that we began to see in 2015 has translated into reduced operating results in Q2 of this year, especially when compared to a very strong Q2 last year. Sales at ESG were down 19% versus last year, primarily due to decreases in shipments of vacuum trucks and street sweepers.
Lower shipments of vacuum trucks are tied primarily to ongoing softness in oil and gas market, whereas the reported reduction in street sweeper sales is associated with fewer large fleet shipments when compared to the prior year quarter. On this lower sales volume, ESG's operating income dropped to $14,900,000 ESG's operating margin for the quarter was 12.5%, down when compared to a record 19.9% a year ago. Orders at ESG were up 18% year over year, benefiting from the Joe Johnson acquisition. Excluding the effects of the Joe Johnson acquisition, ESG orders were up $5,700,000 or 6% compared to the prior year quarter and $28,600,000 or 36% compared to the 2016. While demand and order flow from our municipal markets continues to be solid, industrial markets remain soft.
Jennifer will go into more detail on some of the contributing market factors and impact in her remarks. At SSG, sales were down 10% compared to last year's quarter, reflecting lower sales of industrial products that related to impacts from oil and gas markets and softness in industrial markets generally, partially offset by improved sales into global public safety markets. Our U. S. Public safety business also delivered improved operating margin and operating income for the quarter.
SSG's operating income for the quarter was $6,600,000 compared to $7,300,000 last year and operating margin was consistent with last year at 12.5. Orders at SSG were down 14% mainly due to lower orders for industrial products from international markets. As we have noted previously, most of SSG's business normally operates with relatively low backlog. Corporate operating expenses of $7,200,000 were largely unchanged from a year ago with increases in professional service fees incurred in connection with the acquisition being largely offset by lower employee compensation costs. Turning now to the consolidated income statement.
The reduction in year over year sales translated to lower gross profit. Gross profit was also negatively affected by a 500,000 charge, non cash charge related to purchase accounting. This was the additional cost of sales during the quarter after acquired JJE inventory, which stepped up to approximately its sale value as part of the initial purchase price allocation. These step ups will affect our earnings, but not our cash flow for the next couple of quarters. On this basis, consolidated gross margin of 26.1% for the quarter was down from 29.6% last year.
Selling, engineering, general and administrative expenses of $30,300,000 were down 3% compared to the prior year quarter. During the current year quarter, we also incurred $400,000 of acquisition and integration expenses in connection with the Joe Johnson transaction. Those costs primarily consisted of legal and professional service fees. All of these factors roll into the company's 14,300,000 of second quarter operating income. Other items affecting the quarterly results include other income of $300,000 largely related to foreign currency transactions and a $200,000 reduction in interest expense resulting from our lower average level of debt.
Tax expense for the quarter was down as a result of our lower income with an effective rate for the quarter of around 34%, which was slightly lower than the 36.4% in Q2 last year because of a small discrete tax benefit recognized in the quarter. Our full year effective tax rate for 2016 is currently expected to be about 35%. From a cash perspective, we are projecting a cash rate of between 1520%. The difference between our effective tax rate and our cash tax rate relates to the use of deferred tax assets to reduce our tax payments. These assets primarily consist of net operating loss carryforward and tax credit carryforward.
On an overall GAAP basis, we therefore earned $0.15 per share from continuing operations in Q2 compared with $0.29 per share in Q2 last year. To facilitate earnings comparisons, we typically adjust our GAAP earnings per share for unusual items recorded in the quarter in the current year or the prior year. In the current year quarter, we made adjustments to GAAP earnings per share to exclude the purchase accounting effects and acquisition expenses that I just discussed. On this basis, our adjusted earnings from continuing operations for the second quarter was $0.17 per share compared with $0.29 per share in Q2 last year. Turning now to the balance sheet and cash flow, we generated $10,600,000 of cash from continuing operations in the quarter compared to $30,000,000 during Q2 last year.
The comparability of operating cash flow between the current year and prior year periods is adversely impacted by the non cash settlement of $11,400,000 of accounts receivable that were due from Joe Johnston Equipment as of the acquisition date. As I mentioned earlier, we completed the acquisition of JJE for an initial payment of $96,900,000 during the quarter and also received additional sales proceeds of $5,700,000 relating to the sale of our Bronto Sky Lift business that closed in January. With total debt of $67,000,000 and cash on hand of $39,000,000 we ended the quarter with $28,000,000 of net debt. Availability under our credit facility at the end of the quarter was $240,000,000 and our leverage ratio was low at 0.7 times. We are obviously in a strong financial position.
At this point, we have significant flexibility to invest in organic growth, pursue acquisition opportunities and return value to shareholders. On that note, we paid a dividend of $07 per share during the quarter amounting to $4,300,000 and we recently announced a similar dividend for the third quarter. We also increased the level of our share repurchases during the quarter spending $16,800,000 to buy back approximately 1,300,000.0 shares at an average price of $13 per share. We typically approach share repurchases opportunistically and this quarter's repurchase activity brings total repurchases in the 2016 to $33,100,000 That compares with share repurchases of $10,600,000 in all of 2015. We had about $36,000,000 remaining under our share repurchase authorization as of June 30.
That concludes my comments. And I would now like to turn the call over to Jennifer.
Speaker 2
Thank you, Ian. I'd like to start by providing some color on the second quarter. Our results for the quarter and this year continue to reflect a tale of two markets. Our municipal markets, which constitute about 60% of our revenues remain solid. It was pleasing to see us reported increase in total orders, which was largely driven by the JJE acquisition.
But even after excluding the effects of the JJE acquisition, ESG orders were up about 36% on a sequential quarter basis and up almost 6% versus the prior year quarter. Much of that was due to steady performance in municipal markets and we are optimistic about a couple of near term opportunities for larger fleet orders. While there is some caution in municipal markets in any election year, we continue to see steady demand in The U. S. As well as in Canada.
The growth and improving profitability of our U. S. And European Public Safety System businesses, which are part of our Safety and Security Systems group were also encouraging. These businesses make light bars, sirens and related products for municipal customers in the police, fire and heavy duty markets. They continue to gain share and benefit from a number of new product introductions in recent years.
While municipal markets remain solid, our industrial markets continue to be impacted by the lingering effects associated with the downturn in the oil and gas market. Within our Environmental Solutions Group, an overhang of used equipment at reduced prices continues to impact demand for the new equipment we sell from customers servicing oil and gas and other adjacent industrial markets. As you have seen, this has impacted ESG's revenues and margins. As a result, incoming industrial order activity has remained low with the biggest effects occurring in our vacuum truck As we indicated last quarter, we are uncertain how long the influx of used equipment may continue affecting our demand, but we are laying our plans to manage through softness that may persist well into 2017. Within our Safety and Security Systems Group, industrial orders, particularly orders for our Emergency Warning Systems business have also been adversely impacted by a number of large projects being canceled or delayed.
We're not losing these orders. There just aren't as many opportunities due to the ongoing uncertainty in the industrial and oil and gas markets. We are sizing our business activity to match current demand and have taken actions to reduce our costs, including early retirements, reductions in force, expense controls and cost savings on direct materials. While we are focused on cost management, I also want to emphasize that we continue to invest in top line growth and key opportunities for the future of the business. These investments include sales resources and the development of additional new products.
For example, an improved street sweeper design. We're also working on a line of new Jetstream accessory products and we've introduced our new Tier four compliant street sweepers ahead of many of our competitors. In addition, we are moving forward with new offerings for the utility market. We have a dedicated and focused team working on the launch of a line of tools for hydro excavation work and our Para Digim purpose built vacuum truck designed for that market. The Para Digim went into full production in the third quarter and while we expect it will take time to earn an expanded position in this market, we are encouraged by the initial level of interest in this product.
Within our Safety and Security Systems group, we are launching a redesign of many of our industrial product offerings and are adding additional engineering and product manager resources to support a number of new product development projects. Our balance sheet continues to be strong, which helps us to navigate through our near term market challenges, continue our needed investments and return value to shareholders. In the second quarter, we paid over $21,000,000 to shareholders in the form of cash dividends and opportunistic share repurchases. That is our highest cash return to investors in a single quarter in almost fifteen years. So far this year, we've returned almost 42,000,000 of value to shareholders.
This time last year, we talked about our appetite for adding at least $250,000,000 from acquisitions to our revenue run rate by 2018. With that goal in mind, we were delighted to complete the acquisition of JJE as a meaningful step along that path. Looking further down the road, we continue to seek additional acquisition opportunities. Like Joe Johnston, future acquisitions will need to meet our acquisition criteria and are likely to include businesses with recurring revenue or product lines that leverage our channels or manufacturing capability. I'd like to spend a few minutes on the strategic rationale behind the Joe Johnson Equipment acquisition.
As Ian mentioned, we closed the transaction June and our integration team is continuing to make great progress. Joe Johnson is a strong municipal equipment distributor that operates in four areas of business starting with new equipment sales. Although about 90% of their new equipment sales are to municipal customers, we plan to use their platform to increase our industrial sales in Canada. They have a strong parts and service business that nicely complements Federal Signal's existing industrial platform in The United States. We aim to leverage their equipment rentals and used equipment businesses.
Rentals and used equipment are additional offerings that will allow us to serve additional customers in both industrial and municipal markets, helping us reach more of the market for Federal Signal equipment. We believe that there are significant opportunities in all of these areas. Now that we've completed the transaction, I also want to take some time to go into the detail on some of the financial reporting implications of acquiring a significant customer and how these considerations impact our outlook for the year. As we noted in February when we announced the JJE acquisition and on our first quarter earnings call, a likely accounting implication resulting from the JJE acquisition would be a change in the timing of revenue and profit recognition that should normalize over time. With the closing of the acquisition in June, the initial response to our new rental equipment offering has been encouraging.
Therefore, we are considering accelerating some investment in the rental fleet both in Canada as we execute on our strategy of increasing sales of our industrial products as well as in certain strategic U. S. Geographies. This temporary deferral of profit results from units transferred to JJE that have either not been sold through to end customers or has been placed in the rental fleet. Previously, we would recognize revenue and profit in both cases when the units were shipped to JJE.
Now under a common ownership model, those transactions are considered intercompany sales and do not result in immediate profit recognition. Specifically for the units transferred to JJE for subsequent sale to an end customer, the associated profit is not recognized until unit sell through. This is more of a short term profit deferral as those units typically flow through to the end customer within sixty to ninety days. However, for units transferred to JJE for placement in a rental fleet, the profit deferral may be long term as the upfront revenue and profit recognition is effectively replaced with rental income and the profit on the eventual sale as a used piece of equipment. To give you an idea of how the profit deferral works, I thought it might make sense to walk through an example.
During the month of June, we transferred 26 units to JJE. Of those, 11 were transferred in anticipation of a sale to an end customer, whereas the other 15 units were intended to be placed in the rental fleet, primarily in response to demand for rental offerings from our dealer and direct sales force in The U. S. Prior to the acquisition of JJE, upon shipment of these units to JJE in June, we would have recognized approximately $1,800,000 of gross profit with a corresponding amount of revenue. However, now that we own JJE, these shipments are intercompany transactions and we do not recognize any revenue or profit in Q2 for these sales as the units destined for end customers were not yet sold through to the end customers before the end of Q2 and the units added to the rental fleet would have only generated a month of rental income.
In subsequent months, we expect to see the reversal of previously deferred sales and profit offset by the addition of new deferrals. For example, of the $1,800,000 profit deferred in Q2, we expect to recover about half of that during the remainder of 2016 as units are sold through by JJE. The other half will largely be deferred until the equipment is sold out of the rental fleet, a period we expect to be about three years. As a consequence, we expect this should normalize over a period of about three years. With that, I'd like to move on to our earnings outlook.
As we mentioned, we continue to benefit from relatively steady municipal markets and we remain confident in our businesses and markets for the long term. However, softness in oil and gas and related industrial markets continued into the second quarter. With our strong balance sheet and ongoing actions to bring our cost structure in line with current demand, we are well positioned to work through the industrial headwinds. We are committed to pursuing additional strategic acquisitions and maintaining appropriate levels of investment in our sales efforts and new products to build momentum for future growth. The ongoing softness in industrial demand has weighed on our orders and revenue outlook during the first half of the year, particularly in our businesses that serve oil and gas related end markets.
And we do not believe these markets will recover meaningfully during the second half of the year. On a positive note, some of this decline has been offset by healthy municipal demand, our cost reduction initiatives and sales of newly introduced products. When we provided our outlook for 2016 early in the year, we mentioned the likely accounting implication of the JJ acquisition on the timing of revenue and profit recognition, which I just described should normalize over a period of about three years. We now expect this temporary profit deferral could reduce our 2016 EPS outlook by up to $05 Considering these factors, we are adjusting our 2016 EPS outlook from a range of $0.70 to $0.80 to a new range of $0.65 to $0.75 With that, I think we're ready to open the line for questions. Operator?
Speaker 0
We'll go first to Steve Berger with KeyBanc Capital Markets.
Speaker 2
Good morning, Steve.
Speaker 3
Hey, good morning. It's actually Ken Newman on for Steve. Hi, Ken.
Speaker 4
Thanks for taking my call.
Speaker 3
I had a question on operating cash flow. It was lower in the first half this year just due to the reasons that you mentioned in the slides and the press release. Curious if you could talk about what you expect for free cash flow generation for the rest of the year or at least for the full year in total?
Speaker 1
Ken, is Ian. I'll take this one. Obviously, the cash flow in the first six months of the year, especially as we just presented, it is impacted by the transaction as we described and the associated non cash settlement of the receivables from JG. The working capital that we have is if you look at it as a percentage of sales, it is distorted this quarter largely because of the acquisition as well as the inventory and rental fleet step ups in value. So that is impacting it for the quarter.
I mean, we've only had one month of results of JGE. And so we expect that to normalize over time, certainly later this year and we expect that our cash flow is obviously going to pick up in the second half of the year.
Speaker 5
Understood.
Speaker 3
Looking at the ESG margin decline, can you break out for us how much of that was mix, how much was volume and what pricing did in the quarter?
Speaker 2
Yes, think pricing remained pretty stable. It's a combination of both mix and volume. The hydro excavation trucks that we sell into the oil and gas market have higher margins. So we're feeling the impact of that going forward. But the encouraging news is that we've talked about the improvement in ESG orders, particularly on the municipal side and they tend to have not as good a margins as the hydro excavation trucks, but healthy margins.
Speaker 3
Got it. That's helpful. One more and then I'll jump back in line. We're seeing a lot of companies having a hard time finding organic growth. Curious as you look at your competitors, are they remaining rational?
And is there anything that you can do to stimulate growth outside of price actions? You mentioned a couple of new products coming into market. Anything else that you're looking at?
Speaker 2
On the new product development side, we're very focused on our innovation initiatives, particularly on the ESG side. We have introduced a new product to utility market and we plan on introducing additional products into that market. We also introduced our recycling product and our trailer judder product earlier this year. On the SSG side, we're undergoing some redesign of our industrial core products and we continue to benefit from the new products that were introduced on our Public Safety Systems side. So as we move forward, we're very focused on how do we utilize our existing technologies to open up new market opportunities for us or is there opportunities for some of our existing products in new geographies.
Speaker 3
Okay. And just to follow-up, I mean, as you look at your competitors, would you say that the remaining rational in terms of price actions?
Speaker 2
Not always.
Speaker 3
Understood. But
Speaker 2
we think that we're able to differentiate our product and we've been we're maintaining pricing.
Speaker 3
Understood. Thanks a lot, operator. I'll jump back in line.
Speaker 0
We'll go next to Marco Rodriguez with Stonegate Capital Markets.
Speaker 5
Good morning, Thank you for taking my questions. I was wondering if you could talk a little bit more about the Joe Johnson integration. Just kind of provide any sort of color you might be able to in terms of just the timing, how long you expect it to kind of move through and what sort of perhaps cross training you might be doing with hanging the salespeople?
Speaker 2
Sure. We have Joe Johnson and one of our Jet Stream General Manager leading that project. And we have a team focused on the strategic objectives that we set forth behind the acquisition, which is also tied to the earn out that we previously discussed. And as we mentioned on the call, we have a new product offering, the rental equipment. The initial demand has been encouraging there, as we discussed.
With respect to used equipment, we've done cross training because we've introduced our Jet JetStream, our Guzzler and Westech products to their to Joe Johnson's Canadian sales force. So they've been trained on those products and we plan on leveraging their service centers and their sales team to increase sales of those products. And then on the parts and service side, we now have aggregated 25 locations across North America that should allow us to better service our products in those strategic areas where our customers reside. And then we also believe this used equipment offering is we've sold some used equipment, but we'll have more of that available to sell. And that will it's something that thus far has been received very positively.
So we're encouraged. We're in the early days. We just closed the transaction about six weeks ago. We're encouraged though by the progress we've made today.
Speaker 5
Got you. And I think if I heard you correctly in your prepared remarks, you were looking to basically kind of accelerate some of the rental business after this acquisition here with Joe Johnson. What sort of investments do you need to make to kind of make that happen, if you will?
Speaker 2
When we announced the acquisition, we talked about an incremental 15,000,000 to $20,000,000 investment in our rental fleet. We have obviously certain internal metrics that guide when we make those investments. And the market reaction to the rental offering, both by our dealers that we're going to re rent to and sales force in certain areas has been encouraging. So we anticipate that the amount likely won't change, but we could be making those investments earlier than we originally thought.
Speaker 5
Got you. Okay. And then, other quick question I had here was just kind of from a modeling perspective. Have you guys gotten a handle on how your D and A is going to change, once you bring Joe Johnson in here?
Speaker 1
Marco, this is Ian. Yes, have obviously, we have the rental fleet that is going to be an asset that we're going to depreciate over time. You'll see when we file our Q later today, you'll see how we're planning to depreciate that, the policy that we're going to apply. So we've thought about it. It's obviously our DNA is obviously going to increase over time, because of the addition of the fleet.
So yes, you'll get a feel for how we're thinking about modeling it when we filed the Q later today.
Speaker 5
Got you. Appreciate your time guys.
Speaker 2
Thank you.
Speaker 4
So I just wanted to ask about JJE. And could you provide what you expected the back half revenue and profit contribution would be? And I realize this is going to be a long term story and with the accounting changes related to intercompany, but I wondered about the revenue and profits.
Speaker 2
We typically don't break out the results of the JJE is now part of our ESG group and we don't break out those results beyond that state that it's thus far and we're in the very beginning period, it's performing at or better than we had modeled as part of the acquisition analysis.
Speaker 1
Yes. Well, I think when we think about it, we obviously there's a chain now because of the interplay between kind of ESG and JG now. It's a different dynamic to what we previously had before the acquisition. And so that's really what is reflected in the deferral impact of up to $05 that we
Speaker 4
referenced. Okay. And just switching gears over to the oil and gas commentary that you made. A lot of our companies saw bottoming in the first half of the year. And I realize that you may not have visibility into 2017, but if you can comment any trends or comments from customers, do you think we're at least bottomed and the market will be stable for your oil and gas exposure especially the hydro excavators?
Speaker 2
Yes. We're assuming for the second half of the year that it is going to remain the same with respect to the first half of the year. And we are our internal plans have the overhang that we've talked about bleeding into 2017. Over the last couple of months, we haven't seen it deteriorate further. So that's encouraging.
But we're not expecting any meaningful recovery for the second half of the year. And we believe this overhang of excess inventory will bleed into 2017.
Speaker 4
Okay. Makes sense. And then last, any update on the hearing loss litigation? Were any of the trials started? Are things moving forward the way that you thought they were for the year?
Speaker 2
We have not had any trials in the first half of the year. We put out a press release. We are successful in getting one of the cases dismissed. We have two trials scheduled on perhaps three depending on the timing in the second half of the year. And we're moving forward with aggressively defending those cases.
Speaker 4
Okay, great. All right, thank you.
Speaker 0
We'll go to Steve Barger for a follow-up question.
Speaker 2
Hello, Ken.
Speaker 3
Hey, good morning. Thanks for the follow-up. So, ESG revenue was $235,000,000 in the first half. Curious, do you expect second half revenue to be flat or up versus the first half?
Speaker 1
So I think Steve, I think sorry Ken. I think it would be up in the second half of year mainly because of I mean we're going to have the effects of the Joe Johnson acquisition for the second half of the year that wasn't in there in the first half of the year.
Speaker 2
We also talked about the increased orders. We tried to break it out for you with Joe Johnson, without Joe Johnson. And we are encouraged by the sequential improvement.
Speaker 3
Got it. So those orders another way of saying that is the orders could be monetized before the year is out?
Speaker 2
Some of them, yes.
Speaker 3
Yes. Okay. And then I guess moving to ESG margin, I mean, if we look at the margin in this quarter, is that a good proxy for the back half for ESG?
Speaker 1
It's, I mean, we're not expecting the mix to change significantly. So we're not expecting to see an increase in for example hydro excavators which are higher margin. So I think it's there are going to be some impacts with the JGE acquisition, which you'll need to factor in. It should be a stable margin basis, yes. Got it.
Speaker 3
Okay. And then moving over to ESG. I mean given the view on mix in the 2017, how do you think about the margin for that segment? I mean is that sustainable in the 13% range?
Speaker 2
A lot of it depends on mix. We also have the impact of the JJE acquisition moving forward. But we do remain confident in our long term margin target for
Speaker 3
Got you. And then I guess lastly, mean you did talk about focusing on strategic acquisitions. You talk a little bit about what's in the pipeline currently? Any active projects? And how should we think about deal size as we progress over the call it the next six to twelve months?
Speaker 2
Sure. We have a number of active projects on the pipeline. Look at our management bandwidth. We completed the JJE acquisition. So right now we are focusing more on the SSG side.
But if something were to pop on the ESG side and we thought it made sense and we had the bandwidth we'd move forward. The areas we're focusing on are other adjacent, we're staying pretty close to the core. Does this acquisition give us access to new geographies? Can we leverage channels and markets? Are there adjacent markets with new products?
Those are all some of the acquisition criteria that we're looking at very closely and obviously acceptable returns. So I would say the pipeline is healthy right now. We're pursuing a number of options. We're looking at more bolt on less than $100,000,000 type opportunity.
Speaker 3
Great. I do have one more. Sure. And it's going back to JJE. Could you talk a little bit about the organic growth rate for that business in the quarter understanding that the results are a little mixed just given the accounting here.
But just the organic growth rate where you're finding cost savings and the JJE generate cash on a standalone basis?
Speaker 1
So from a standalone kind of contribution JJ and so for the month of June contributed about $10,000,000 of revenue and just a little shy of $1,000,000 of operating income. Does that help?
Speaker 3
It does. Thank you very much.
Speaker 2
Okay. There are no more questions. In closing, I'd like to reiterate that we are confident in the long term prospects for our businesses and our markets. We'd like to express our thanks to our stockholders, employees, distributors, dealers and customers for their continued support. Thank you for joining us today and we'll talk to you at the end of the third quarter.
Speaker 0
Ladies and gentlemen, that does conclude today's conference. Thank you all for joining.